The much anticipated Pre-Budget Report was announced by the Chancellor today and there were very few giveaways although with an eye on the Election next year a few sweeteners were implied. Some of the key measures are analyzed in more detail below.

Business Issues

National Insurance

The main headline is the increase in National Insurance on those earning over £20k per annum. The increase of 0.5% is in addition to the 0.5% that was already due to be introduced on 6 April 2011. The increase is expected to raise £2.4 billion per annum from employers and £2 billion from individuals. This is not an insignificant additional tax burden and will not be well received at a time when the Government is actively promoting employment.

For an individual earning £50000 a year the change will mean an increase in National Insurance of £23.65 per month and for the employer an additional £429.55 per annum.

VAT

It is confirmed that the VAT rate will return to 17.5% on 1 January 2010. The rumours prior to the Report about an even higher rate proved unfounded, at least for now.

Patent Box

A reduced 10% rate of corporation tax will apply to income received by companies from patents although it will only come in to effect from April 2013. This is particularly aimed at the life sciences industry and combined with the current R&D tax credit system puts the industry at a favoured tax position over other industries. The measure is intended however to ensure the UK maintains its competitiveness.

Company cars and vans

The company car tax bands will be restructured from April 2012 so that the 10% band will apply to petrol company cars with C02 emissions of 99g/km and below. The bands will increase by 1% for each additional 5g/km of C02. The 3% diesel supplement will remain.

The basis figure for calculating the tax charge on the benefit of private fuel will be increased from £16900 to £18000 from 6 April 2010. For a company van the figure will increase from £500 to £550.

Electric company cars and vans will no longer be subject to any tax benefit for the next five years after 6 April 2010. In addition a new 100% capital allowance will be introduced from April 2010 for business expenditure on new electric vans. This does not cover hybrid vehicles.

Climate Change Levy

Energy intensive businesses that have entered into climate change arrangements will see a reduction in the climate change levy discount they receive from 80% to 65%.The reduced rate of climate change levy will therefore increase from 20% to 35% meaning the amount of CCL will virtually double.

This is likely to result in a significant increase in energy costs for affected businesses that have already agreed to meet certain energy reduction targets and invested accordingly.

Empty properties exemption

It was announced that the business rates exemption for empty properties with a rateable value up to £15000 will be extended for a further year from April 2010. The rateable value threshold will be increased from this date to £18000.

Small Companies Rate of tax

The planned increase from 21% to 22% to the small companies rate of corporation tax for the financial year due to start on 1 April 2010 has been deferred by one year.

Research and Development

The requirement in the SME R&D regime that Intellectual Property derived from the R&D expenditure be owned by the claimant company alone or with other persons is to be abolished. The removal of this requirement will mean that SME companies undertaking their own R&D work will now be able to claim without considering the IP ownership. This is a welcome simplification of the rules and applies to any expenditure incurred after 9 December 2009.

Individuals

Income tax thresholds

Both Income Tax Thresholds and Personal Allowances will be frozen which means that more people will potentially fall into the higher tax bracket.
Pensions

The Government has now published the draft legislation that will take effect from 6 April 2011 to restrict the higher rate tax relief on pension contributions whose income exceeds £180000. Individuals with income between £150000 and £180000 will be subject to a tapering away of the relief. The proposals further complicate the rules for pension providers, employers and individuals.

In addition in order to prevent a pre-emption of the measure by increasing contributions and obtaining higher rate relief before the new rules start the Government announced in April 2009 that where relevant income is at least £150000 in both 2009/10 and 2010/11, or either of the preceding years, then relief will be clawed back if they make contributions over the regular amount they pay and contributions exceed £20000.

The Pre Budget Report reduces the threshold for this anti-forestalling measure from £150000 to £130000 per annum.

Enterprise Investment Scheme

HMRC have reviewed their interpretation on the availability of EIS relief where the company concerned trades through a partnership. In these circumstances relief will no longer be available to individuals who invest in such companies. This is an unwelcome new measure as it restricts the availability of these valuable reliefs.

Furnished Holiday Lettings

With effect from 6 April 2010 legislation will be introduced to bring the tax treatment of furnished holiday lettings in line with the rules for other property income. The benefits associated with furnished holiday lettings including flexible loss relief, capital allowances and capital gains reliefs will therefore cease.

Inheritance Tax - nil rate band

Normally the Inheritance tax nil rate band threshold is increased each year in line with inflation unless an alternative specific level is stated. This automatic increase has now been abolished and for 2010/11 the rate will remain at its current level of £325000.

Other Issues

VAT Flat rate scheme

The percentages used to calculate the VAT Flat Rate scheme for small businesses will change from 1 January 2010 in line with the reversion of the standard rate of VAT back to 17.5%. Business will need to take extra care to ensure the correct rates are applied to turnover falling around the time of the changeover.

Stamp Duty Land Tax

The threshold above which stamp duty is paid on the purchase of residential properties will be reduced to £`125000 from £175000 with effect from 1 January 2010. This takes it back to the level in September 2008. Any purchase not completed by 31 December 2009 will be subject to the new threshold.

Boiler scrappage scheme

A £400 incentive will be available to households to upgrade old inefficient boilers to the latest energy efficient models.

Landline Duty

In order to assist with the Governments aim to provide superfast broadband to all homes a new landline duty of 50 pence per month for each line, both business and private, will be introduced from 1 October 2010.

Note

This publication has been written in general terms and therefore should not be relied upon to cover specific situations. We recommend that you take professional advice before acting on any of the contents of this publication. Park Royal Accounting in association with Pink Accounting Resources will be pleased to discuss any issues arising from this publication applicable to your specific circumstances.

Park Royal Accounting and Pink Accounting Resources Ltd accept no responsibility or liability for any action or non-action arising as a result of any issues covered by this publication.